How do short-term events affect your portfolio? Should you read general market news, financial articles, analysts’ ratings, and quarterly earnings? Should an investor follow stock price fluctuation? What kind of impact do all these really have on your portfolio?
This is what we will cover in this episode, along with a few tips on how to review your portfolio during summertime!
- How short-term events don’t really impact your returns.
- Why should you not read too many articles on the same topic.
- How the Pareto Principle can be used with your investment decisions.
- Should an investor take action on stock price fluctuation? And is there a difference in the action to take depending on the length of the trend you look at (daily, monthly, yearly).
- What is insider trading and how to react to it.
- How valuable are quarterly and yearly earnings reports.
- The five tips Mike uses to review his portfolio during summertime.
The Information Matrix
Any information coming from a reliable source is good information. I’m not here to tell you to stop reading Seeking Alpha or the Globe Investor. I’m here to help you know the difference between information that will help you make good investment decisions and information that may send you into paralysis by analysis mode.
Stock market noise will create doubts in your mind. Later, this doubt could result in anxiety or even bad investment decisions. For most of us, the best action to have taken back in March 2020 was to have taken no action at all. The noise starts when you get too much of a type of information or if you consume it at the wrong moment (or for the wrong purpose). Therefore, I decided to classify information types into a matrix.
I didn’t mean to make an exhaustive list of information. The purpose of this matrix was to empower you in selecting the right type of information (mostly quarterly earnings summaries and financial articles in small doses). The effort to collect and analyze the information should be done in your research process. I know it’s tempting to try to determine what will happen in 3 months and invest accordingly. But the truth is that nobody knows and most of the play you could make won’t generate the expected results. Long-term dividend growth investing is about spending lots of time coming to understand the companies you invest in and then following up quarterly to make sure you were right in the first place.
At DSR, I make sure we cover this part and do the hard work for you. Our summaries should be more than enough to do your quarterly follow-ups. Trust your investment process and focus on the 20% of your work that will generate 80% of your returns. If the information you read is not in line with our investment process, this is probably just noise.
Here is also a video on how to review your portfolio quarterly which may help you this summer as well.
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